Jeremy Hunt opened his budget speech reminding us that ‘lower taxes mean higher growth’ and promising more investment in the UK, more jobs, more investment in public services and lower taxes, as the government promises to steer us to a higher wage and higher skill economy.
So, amongst a raft of announcements from improving the NHS to boosting economic growth, what are the key takeaway’s for your personal finances?
National Insurance cut by 2%
To stop the double whammy of Income Tax and National Insurance on workers alone, the Chancellor announced further cuts since the Autumn budget on Employee and Self-Employed Main Rates of National Insurance, by 2%.
This cut will directly benefit those working in the economy, however, pensioners and those of us whose income is derived from other sources, such as rental and dividend income, will receive no benefit from this change.
Employees currently pay 10% National Insurance on weekly earning between £242 to £967.
The cut will benefit those earning between £12,570 and £50,270 per year, with a maximum increase of up to £62 per month in your net pay from the 6th of April.
For the Self-Employed the further cut in Class 4 National Insurance will see the main rate fall from its historic 9% to 6% from the 6th of April 2024.
With the additional abolition of the need to pay Class 2 National Insurance contributions, this is set to save the average self-employed person on £28,000, around £600 per year.
High Income Child Benefit Charge (HICBC)
Jeremy Hunt highlighted the ongoing injustice for families losing valuable Child Benefit where one parent earns in excess of £50,000, whilst families with two parents earning up to £49,000 each retain the full allowance.
He promised consultation on moving the assessment of this charge from the individual’s income to a household income basis. However, this may take some time.
So, in order to make this system fairer now, the threshold for adjusted net income over which you start to lose this benefit moves from £50,000 to £60,000, with the rate of the charge halved, meaning you now have to earn over £80,000 before you lose all benefit.
This move should see over five million families save an average of £1,500 per year.
Creating more homes for long term lets
In a bid to increase rental property availability the Chancellor announced the abolition of the Furnished Holiday Lettings (FHL) tax regime and cuts in Capital Gains Tax (CGT) rates for second properties.
The FHL regime currently offers a number of tax breaks against alternative long-term lettings.
For those running unincorporated property rental business which include Furnished Holiday Lets, you will soon lose the advantages of:
- Deducting interest costs on loans from your profits and gaining tax relief at your highest marginal rate.
- Claiming capital gains tax reliefs such as Business Asset Disposal Relief.
- Benefitting from Capital Allowances on purchases of items such as furniture and fixtures.
- Counting rental income as earnings to support tax relieved pension contributions.
So is it time to maximise your pension contributions before this benefit is lost?
There was some positive news for those with investment properties, with the maximum rate for Capital Gains Tax on second properties being cut from 28% to 24%.
The Lapper Curve suggests this is the optimum tax rate to maximise total tax revenue by increasing the number of property transactions.
So the government hope to raise more taxes whilst potentially encouraging the availability of former rental homes coming on to the market and boosting the housing supply.
But for those of you holding second properties with unrealised capital gains this may provide the opportunity to exit with a lower tax liability.
Let us not forget however, that the reduction in the Capital Gains Tax Allowance to £3,000 from 2024/25 will increase the amount of gain subject to the lower tax rate.
And in final move on property, which Jeremy Hunt enjoyed announcing to the opposition’s Angela Rayner, Multiple Dwellings Relief from Stamp Duty is to be abolished. Not sure why, but I guess Angela has her own Buy To Let Portfolio!
Promoting UK Equity Investment
The Chancellor announced directives to increase the level of investment in UK companies through your pensions and investments.
A new ‘UK ISA’ with an allowance of £5,000, on top of existing ISA allowances, to hold UK focused investments and increase your tax-efficient investment opportunities.
The requirement for Defined Contribution and Local Government Pensions to disclose the levels of investment between UK and International Equities, in a bid to encourage investment in UK focused assets, may be a pre-cursor to the FCA reviewing requirements for this market sector.
And finally, a new ‘British Savings Bond’ to be launched in April ‘24 through National Savings & Investments (NS&I), with a 3 year guaranteed fixed interest rate, to open new routes for government financing.
Making those who can afford to pay, pay!
The Chancellor announced the abolition of the ‘non-dom’ status, the tax regime for those that are resident in the UK but domiciled overseas.
From April 2025, those who come to live in the UK from overseas will escape UK Income Tax on their overseas income for the first 4 years after which they will pay the same level of tax as everyone else.
For those ‘non-doms’ already here, a 2 year transition arrangement will give them the opportunity and a tax carrot to onshore overseas assets and promote investment in the UK.
These changes are forecasted to raise £2.7bn in additional taxes annually.
Pensions
The subject closest to my heart!
Recommitment to exploring Lifetime Providers for Workplace Pensions so an employee can have one pension for life that will travel with them as they move from job to job, but no announcements yet.
And that’s about it, so the perennial discussions around changes to tax-free cash allowances will roll on for another 6 months, however don’t forgot the previous changes that are coming into place soon.
Remember, the Lifetime Allowance will disappear on the 6th of April, replaced by the new Lump Sum & Death Benefit Allowance (LS&DBA).
These rules will make some, not sweeping, changes to entitlements for tax-free cash and pension death benefits, so please remember to take advice when drawing benefits or planning your future wealth transfer to ensure you achieve the best outcomes for your individual circumstances.
And one final question ?
Have we seen a budget to woo the electorate, or do the Tories already feel they have lost the next election but wish to remind us of their stance as a fiscally responsible tax cutting party ahead of the next incumbents.
Whilst the budget does contain tax cuts for those in employment, let us not forget that these cuts are being paid in part at least, by ongoing stealth tax increases.
Frozen Personal and Inheritance Tax Allowances to name but two, and further reductions in the Capital Gains Tax and Dividend Income Tax Allowances from the 6th April will continue to pull more of our income and wealth into the taxman’s sights.
And will this be Jeremy Hunt’s last budget as Chancellor, not if the Tories win the next election or more likely that no election is called until after the Autumn Budget.
Contact us on 0330 320 9280, email: info@cravenstreeetwealth.com or complete our online enquiry form to discuss how you may benefit from changes announced in the 2024 Spring Budget.
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